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Q&A: Edmund King, president of the AA, on the company's plans for refinancing

By / 6 years ago / Comment / No Comments

What are the reasons for the refinancing?

We have always said that reducing the amount of expensive debt we inherited from the previous private equity owners is a top priority. This refinancing will reduce our finance costs considerably, saving £45m a year allowing us to pay off our debt more quickly while also meaning we have more cash to invest in our strategic plan and support the ongoing development of the business.

 

How will it be carried out?

We have raised £200m of new equity to pay off our most expensive debt – the PIK – that we inherited from the previous owners. We have also swapped the costly bonds put in place by the previous owners in 2013, for new bonds with lower interest rates. In total this will mean we are saving £45m in annual interest costs so we’ll be in a better position to support the ongoing development of the business.

 

What are the plans for the longer term?

We want to transform the AA from being the provider of an insurance breakdown product into a digital brand with a wider suite of products to meet motorists’ needs. The refinancing alongside our strategy to significantly invest in our IT systems, digital capability and the brand, will put in place the building blocks for long-term growth, and ensure the AA remains the UK’s pre-eminent motoring organisation.

 

What plans are in store for fleets?

We put customer service at the forefront of everything we do. The service provided by our patrol force is already absolutely excellent, and this is supported by our first-class geo-tracking system, AA Help. To improve our fleet service even further we are planning to increase the number of patrols on the road, as well as to tailor our fleet vehicles for every eventuality so that they are even better able to handle issues at the roadside. Our fleet customers will also have the opportunity to further benefit from our digital transformation, for example, by being able to track the progress of their AA patrol via the AA App.

 

How is the AA planning to slow the fall in member numbers?

Last year the slight drop in personal members was balanced by an increase in spend per member as well as an increase in the number of new B2B customers. The drop in personal members was due to our decision to no longer chase low margin business through heavy discounting. The AA clearly offers a premium service, and we need to market this rather than just compete on price. Research indicates that customers are happy to pay more for a more inclusive service.

 

Bob Mackenzie mentioned plans for accelerated investment in IT systems. Have these lagged behind?

Under previous private equity ownership, the AA was significantly under-invested in. As a result, our back-office systems are in need of an update. Our planned investment into these systems will allow us to operate more efficiently as a business, which will benefit staff, and we are also looking at digitising how our customers use the AA service to improve the customer experience.

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